The real issue is colours that don't come from the Quake palette (or from textures).
Personally I'm in two minds about this. Gamma is one of those settings that you're not going to be changing every frame. You'll change it once, maybe tweak it a little to find a value you like, then you'll leave it be for the rest of eternity. That argues against real time control. On the other hand the big advantage of being able to do it in real time (and with instantaneous feedback - not having to wait for textures to reload!) is to be able to see and compare the effect of different values.
I'll content that even having to wait 0.5 seconds to see the effect of a gamma change is a barrier to most players. They'll get pissed at you for it.
Regarding FPS, a drop from 700 to 300 isn't "shredding FPS".
700 FPS = 1.42 milliseconds per frame.
300 FPS = 3.33 milliseconds per frame.
Gamma therefore takes (3.33 - 1.42 =) ~2 milliseconds to apply.
Compare that to a case where your normal FPS is 200. That's 5 milliseconds per frame. Add gamma and you run at 7 milliseconds per frame, or 142 FPS.
The whole idea that dropping from some-huge-number to some-other-huge-number is somehow catastrophic is just bogus. But that's something else that players will get pissed at you for, unfortunately.
